Monthly Archives: November 2016

Information About The Financial Advice You Need in Your 30s

Now that you’re in your 30s, your career is a bit more established and your personal life may be more complex if marriage and kids have entered the picture. You (hopefully) are no longer living paycheck-to-paycheck, but aren’t sure what to do with your extra cash. When you have kids, debt, and your retirement to fund, where is the best place to put your money to work? Someone keeps calling you about buying an annuity or whole life insurance policy. Should you listen to what they have to say?

As a general rule, it’s good to put 50% of your paycheck toward your necessities (including all types of insurance), 30% toward your wants (like cable, dining out, and travel) and 20% toward savings (including paying down debt). (For related reading, see: The Financial Advice You Need in Your 20s.)

You may be able to contribute to all the items listed below. However, if you have to prioritize where to invest your limited resources, review my comments on each item then decide what works best for you.

Necessities:
Life Insurance – If someone is depending on your salary (i.e. kids, elderly parents, or spouse), consider buying term life insurance. It’s relatively cheap and you’re less likely to have health issues now that may prevent you from being insurable later. If you have kids, this is a must. At a minimum, have enough coverage to pay their expenses until age 18. Whole life policies or annuities tend to combine life insurance with investing and charge a high fee to do so. Instead, just buy term life insurance and invest the rest of your money on your own.

Disability Insurance – What would you do if you could no longer work? Could your spouse cover all the household expenses? Could someone else step in to help? If not, consider buying long-term disability insurance. It’s better to get some coverage outside of work, but if you can only get some through work that’s better than nothing. The reason it’s better to have coverage outside of work is if you develop a medical condition that makes it impossible to get insurance, then you leave your company, you will no longer be covered.
Other Insurance – Try to bundle your car/renters/homeowners/umbrella insurance at one company to take advantage of reduced rates. Also, if you get married be sure to pass that information along to your insurance agent for possible lower premiums.
Wants:
Saving for a down payment on a house – This could be part of your “savings” but I’d rather you categorize it as a “want.” Cut back on some of your non-essential expenses to work toward your worthwhile goal of homeownership. Consider opening a separate savings account called something like “My First House” and have a certain amount of each paycheck automatically deposited into it. I recommend a savings account over an investment account because it has no chance of declining in value.

Savings:
401(k) with company match – This is a no-brainer. Free money is free money. Contribute to your 401(k) at least up to the point you get your company match. Some companies give you an option to automatically increase your contribution each year. If your company offers this then sign up. You probably won’t notice any change to your paycheck, but it’ll have a huge impact on the size of your account on the day you retire.
Pay off high-interest credit card debt – After contributing enough to your company retirement plan to get that free money, focus the rest of your savings allocation on paying off your debt as quickly as possible. Pay the minimum each month for all your cards except for the one that charges the highest interest rate. For that one, pay off as much as you can afford each month. Once that one is paid off, focus on paying off the card with the next highest rate. Continue this strategy until all credit cards are paid off.

Student loan debt – Although I’m listing it here, this shouldn’t necessarily be your next highest priority. If you’ve got a low-interest loan it might make sense to make your monthly payments but not pay it off early. However, if you have a high-interest student loan pay it off as soon as possible. Remember, student loan debt is one of the few debts not forgiven when filing for bankruptcy. (A Note on Debt: The only new debt you should accumulate is a mortgage. Yes, this includes buying a car. If you don’t have the funds to buy a new car without a loan, it’s probably a car you can’t afford.)
Roth IRA – Contributing now, while you’re likely in a lower tax bracket than you will be later in your career, allows you to grow your investments tax-free for a very long time. The longer you hold your Roth, the longer the power of compounding works in your favor. Also, as you get older you may make too much money to be allowed to contribute to a Roth.

401(k) with no company match – If you’ve contributed as much as you can to your Roth IRA, then by all means continue to contribute to your company’s 401(k) until you reach your yearly contribution limit ($18,000 in 2016 for those under 50). It’s still a good deal since the taxes are deferred until you take the money out in retirement.
529 College Savings Plans for your kids’ college – Yes, this should be your lowest priority. Although it’s great if you have enough money to fund your kids’ college education, it has to take a back seat to funding your retirement. Your kids can get a loan to pay for college, but you can’t get a loan to pay for retirement.
Obviously, this is not a complete list of financial issues every 30-something faces, but they are some of the bigger ones that many people in this age bracket face.

Know Somethings Before Rent

Thinking about moving into your first apartment? The transition may be getting harder: According to Census data, 39% of single women and 46% of single men between the ages of 20-29 were living at home in 2005, up from 36% of women and 42% of men in 2000.

It\’s a small increase, but a 2007 study by the Pew Charitable Trusts suggests that as a group, young people earn considerably less than their parents did at the same age, after adjusting for inflation. In other words, for those who have just secured their first jobs and want to make the move to independence, it might not be a picnic.
Can You Afford to Move?
Although you may feel ready to get out on your own, make sure your finances are in order before you take the leap. Take a look at some rental listings in the areas in which you are interested in living and get an idea of how much you\’ll have to pay to live there.

You may be unsure of how to determine how much rent you can afford, but U.S. Housing Department guidelines suggest that you shouldn\’t pay more than 25-30% of your gross salary for rent. In other words, if you make $30,000 per year, you should look for apartments that cost about $750. If this isn\’t realistic in your area, you may have to get a roommate to share the cost.

Next, you\’ll have to consider your other monthly expenses and whether you\’ll be able to pay those bills as well. Do some accounting to determine how your finances will balance out with the added expense of living in your own place. Start with your monthly take-home pay, add any other income you might receive and subtract your other expenses from this number.

If you are already making payments on a car, credit card or student loan, be sure to include these amounts in your expenses list. Gas for your car (or a bus pass), insurance (rental and vehicle), cell phone bills and an estimate of the amount you usually spend on personal items should also be included.

Ask your parents or other people you know to help you come up with estimates on how much your new expenses, like your utilities, telephone and cable bills, and groceries will cost. They might also alert you to additional expenses that you weren\’t aware of.

Learn to Budget
What if your expenses turn out to be higher than your income? This is where things get interesting. In short, you\’ll have to get out your calculator and make a budget. Relying on your credit card to cover this shortfall is a no-no and is often a dangerous path to major debt down the road. (To learn more, read Get Your Budget In Fighting Shape.)

Take a look at your budget. Is there anything in there you could live without or pay less for? Usually, the answer is “yes”, and if you look critically at how you spend your money, you will likely be able to trim your expenses so that they match up with your income, or, better yet, so that you have some money left over each month to save in case of an emergency.

Also consider that you\’ll have to have some savings (or some help) to begin with, as most apartments will make you pay your first and last months\’ rent up front, along with a security deposit. There will also be fees for hooking up your up utilities to consider, along with moving expenses and the cost of any items you\’ll need once you move in. Laundry is also often an additional expense.

Finally, you should consider renters\’ insurance. Some rental properties will even make you purchase it as part of the lease agreement. Rental insurance is affordable and it can cover damage (such as in a fire) and theft to your belongings. It will also protect you from liability if you cause the damage yourself. Don\’t leave it out of the equation – it might be worth the investment!

Find a Place You Can Call Home
Once you have set some parameters in terms of what you can afford, it\’s time to start looking for a place to move into. Start by searching internet sites, classified ads and by visiting the neighborhoods where you might like to live.

Although you\’ll definitely want to find a place that fits your budget, make sure it\’s in a neighborhood you like, are familiar with and feel safe in – what looks like a bargain can turn out to be a nightmare if you feel uncomfortable there, live too far away from your friends and family or have to make a very long commute to your job.

Looking at the Lease
Whether you decide to rent month-to-month or sign a year-long lease, be sure to read what you are agreeing to carefully. The lease should detail how much rent you must pay, when it is due, how long you can occupy the apartment or house and who is responsible for utilities (some leases include them). It will also include rules about pets, roommates and whether you can paint or do improvements. Make sure that you get your lease in writing and that you keep a copy for your records once it is signed. If you\’re unsure about anything in the lease, ask the landlord. If you get an answer you can\’t live with – or you don\’t get one at all – you should probably keep looking.

The Big Move
Once you\’ve signed your lease and have a move-in date, it\’s time to start working on a list of what you\’ll need in your new place. One way to do this is to make a list of what you use regularly for a few days, including kitchen utensils, office supplies and personal items. If you won\’t be taking these items with you, you may have to shop for your own.

Keep in mind that your first apartment will not have all of the amenities you may be used to and, if you can\’t afford to buy them all for yourself right away, you\’ll probably have to be resourceful and make use of what you do have.

Similarly, if your budget it tight, you may not be able to have new furniture right away.

If you don\’t have any furniture of your own, start asking family and friends if they have bits and pieces you can buy, have or borrow. You can do the same for any other items you need.

You should also stock up on basic items for your pantry such as pasta, rice, canned goods and frozen foods. Keeping your kitchen well stocked with things you like, know how to cook and are easy to prepare may prevent you from going out to eat, which will help you stay within your new budget.

Independence Day
If you\’ve done everything right, your utilities should be hooked up, your bags packed and your bills paid. Determine what day you will be moving into your new place and decide how you\’ll get your things there. If possible, recruit friends and family to help you move, rather than hiring a mover.